TMI Blog1960 (10) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... leged assessee agent for the goods of the non-resident companies. Such a connection, which is of a very loose nature and has no firm basis, cannot, in our opinion, be held to be “business connection” within the meaning of section 42(1) of the Act. - IT REFERENCE NO. 11 OF 1958 - - - Dated:- 5-10-1960 - MR G.D. KHOSLA, CJ. AND D.K. Mahajan, J. For The Appellant : Bhagirath Dass and K.C. Puri For The Respondent : H.R. Mahajan and D.N. Awasthy JUDGMENT Mahajan, J.- This order will dispose of Income-tax References Nos. 11 and 13 of 1958. These references have been made under section 66(1) of the Income-tax Act by the Income-tax Appellate Tribunal, Delhi Bench. In both these references, the following questions of law have been stated for our opinion: 1. Whether on the facts and in the circumstances of this case the notice dated March 29, 1954, issued under section 22 read with section 34 of the Indian Income-tax Act was validly served on the assessee? 2. Whether the relationship between the assessee and the nonresident fell within the meaning of the expression 'business connection' as used in section 42(1) of the Indian Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, Simla. This notice was served through Bhagat Ram, process server. How the service was effected has been set out below. This I have taken from the statement of the case: The process server's report on the back of the copy of the notice returned to the Income-tax Officer reads as follows: 'Sir, It is submitted that on inquiry I came to know that the different members of the family have different opinions. One says something, another says another thing. From this I conclude that they are evading service of the notice.' It appears that the process server returned the notice to the Income-tax Officer and thereafter the Income-tax Officer ordered as follows: 'I authorise Shri Bhagat Ram to affix notice under section 34 for 1952-53 in the case of M/s. R.D. Aggarwal, Agent of Comptoirs Lainiers Osterieth S.A. Anvers (Belgium). ( Sd.) G.R. Bahmani, I.T.O., C-Ward, Amritsar. March 31, 1954' The subsequent report of the same date made by the said process server reads as follows: 'It is submitted that accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be made liable for any profit that accrued or arose or deemed to have accrued or arisen to the non-resident in respect of those transactions in the previous year under consideration. 4. That, in any case, the non-resident did not make any profit in the transactions of sale of worsted woollen yarn made in the taxable territories inasmuch as the sales were made at a loss. The Tribunal in agreement with the Department held: 1. That the service of the notice was proper; 2. that the relationship between the assessee and the non-resident was that of a principal and agent and that such relationship fell within the meaning of the expression 'business connection' in section 42 of the Indian Income-tax Act; 3. that profits accrued or arose to the non-resident at the time when delivery of the goods took place and the payments were admittedly received in the previous year under consideration and, therefore, the profits attributable to the operation of canvassing and acceptance of the orders must be deemed to have accrued or arisen to the non-resident in the previous year under consideration; and 4. that there was no material to hold that the sales were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad case [1940] 8 ITR 522, the resident and the non-resident work in close concert with a view to producing profit it is difficult to draw inference. Where, however, as in Currimbhoy Ebrahim's case [1935] 3 ITR 395, the non-resident has no interest direct or indirect in the resident company and there is only a single transaction between the non-resident and the resident resulting in gain to the former, without any further evidence of a course of dealing between the parties the inference of business connection cannot be drawn. In this case, the decision in Hira Mill's case (supra) was referred to without any adverse comment. In Commissioner of Income-tax v. National Mutual Life Association of Australasia [1933] 1 ITR 350, Mr. Justice Rangnekar tried to explain the meaning of the term business connection and observed as under: All that is necessary is that there should be a 'business' in British India and a connection between a non-resident person or company and that business, and that the non-resident person or company has earned an income through such connection. No useful purpose will be served in examining the cases cited before us, for each one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either direct or through a broker, offered to purchase them by sending an order to Ujjain. We do not think that this amounted to a 'business connection in British India' from or through which the assessee derived the profits or gains on those transactions within the meaning of the authorities to which our attention has been drawn. They were sales to customers who happened to be in British India. It may be that, in the circumstances of this or any other particular case, the profits or gains accruing or arising to a non-resident from its sales in British India can be reached by the British India income-tax authorities under section 4(1) of the Indian Income-tax Act. But that is quite a different thing from 'deeming' them to have accrued or arisen in British India from or through a 'business connection'. In this case, we do not think that there was any such 'business connection' as falls within section 42(1) of the Act. These observations fully apply to the facts of the present cases, as I have already said. Here also the alleged agent is nothing more than a free-lance broker. He has not been appointed by the non-resident companies. He is not boun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to refer to other cases but the decision in Hira Mills' case (supra) draws the line as in that case it was held that no business connection was established. The question what constitutes business connection was fully considered in the judgment but as in that case the brokers were 'free-lance' brokers who were not bound to canvass the business on behalf of the mills and were not subject to the control of the mills, the existence of a business connection was not established. This decision is very instructive, if I may say so with respect, as it throws considerable light and gives guidance to determine whether there is or is not a business connection and reviews the earlier decisions on the point. The goods in that case were no doubt sold in India to customers but, notwithstanding this fact, section 42(1) was not applied as there was no business connection. That being so, the answer to the first question must be returned in the affirmative, to the second question, as I have already said, in the negative, and in view of our answer to the second question, the third question does not arise for our opinion. The references are answered accordingly. The assessee will ..... X X X X Extracts X X X X X X X X Extracts X X X X
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